Performance review

The 1H22 performance is in line with our expectations

The company announced 1H22 results. 1H22 achieved revenue of 48.45 billion yuan, an increase of 0.7% over the previous year, and Guimu's net profit of 11.53 billion yuan, an increase of 5.0% over the previous year. Revenue and profit performance were in line with our expectations.

Development trends

Overall revenue and performance were stable. 1H22's revenue was +0.7% year on year (1Q22 +1.6% year on year), and the net profit of the mother was +5.0% year on year (+5.1% compared to 1Q22). On the revenue side, 1H22's net interest income was -7.3% year-on-year (-7.5% compared to 1Q22), mainly affected by the decline in interest spreads. Net income from fees and commissions was +15.3% (+27.7% compared to 1Q22), and non-interest income was +42.7% year on year (+58.4% compared to 1Q22), contributing to positive overall revenue growth. On the cost side, the cost revenue ratio of 1H22 increased slightly by 1.0ppt to 27.9% year on year, and the cost revenue for the single quarter of 2Q22 fell 0.9 ppt to 27.5% month-on-month, and cost control capabilities improved marginally. On the reserve side, 1H22's credit impairment losses fell 4.8% year-on-year, which is of some help to profit growth.

Asset growth is slowing, and interest spreads are under slight pressure. The company's total assets were +0.5% month-on-month in 2Q22 (+4.0% month-on-month in 1Q22), asset investment slowed down due to macroeconomic fluctuations. Loans and bonds were +0.2%/+1.6% month-on-month (1Q22 +3.7% +2.7% month-on-month). The regularization of debt-side deposits is obvious. The share of regular debt-side deposits and personal term deposits increased 2.6/0.4 ppt respectively compared to the beginning of the year. In a declining asset income environment, interest spreads declined from the previous period due to the relative rigidity of debt costs. 1H22's average daily balance net interest spread fell 28 bps to 2.41% year-on-year, affecting interest business performance.

China Revenue continued its rapid growth trend, and the investment business performance was stable. In terms of intermediary business, 1H22's net revenue from fees and commissions was +15.3% year-on-year (+27.7% compared to 1Q22). The company overcame the adverse effects of factors such as repeated epidemics, and the intermediary business maintained relatively rapid growth, mainly due to credit commitments and the contribution of the agency business to the rapid growth (1H22 +39.5%/+9.7% year-on-year respectively). In terms of investment business, the total of 1H22 investment income, fair value change income, and exchange income was +92.2% year on year (1Q22 +125.7% year on year), contributing to overall non-interest rate growth.

Follow the progress of subsequent asset quality repairs. 2Q22 The company's non-performing rate increased 0.04ppt to 1.79% month-on-month, the attention rate decreased by 0.11ppt to 2.86% month-on-month, the overdue loan ratio increased by 0.18ppt to 2.06% from the beginning of the year, and the asset quality index portfolio fluctuated from the previous period. In terms of risk offsetting capacity, the company's provision coverage rate fell 1.2ppt to 151.9% month-on-month, and there is still room for improvement in the level of provision.

Currently, the company is still in the credit risk elimination cycle. We recommend that you pay attention to the progress of subsequent asset quality repairs. Clearing inventory issues will help future business development and achieve lightweight entry.

Profit forecasting and valuation

Considering that the company's cost savings help increase profits, we slightly raised the 202E net profit to 24.27 billion yuan by 9.8% and the 2023E net profit to 25.10 billion yuan by 11.7% to 25.10 billion yuan. The current stock price corresponds to 202E 0.3x P/B, 3.7x P/E, 2023E 0.3x P/B, 3.5x P/E. Keep the target price unchanged at 6.57 yuan, with room for 28.3% increase from the current stock price. Corresponding to 202E 0.4xp/B, 4.8x P/E, 2023E 0.4x P/B, 4.5xP/E, the neutral rating remains unchanged.

risks

The macroeconomic situation fluctuated, and asset quality restoration progress fell short of expectations.